What Is the Difference Between Price and Value of a Business?

The difference between value and price is fundamental, particularly when valuing businesses, real estate, or other assets. Although these terms may appear similar at first glance, in practice they mean something different.

Price

Price is the specific amount for which an asset is actually sold or purchased. It is the result of an actual market transaction between a buyer and a seller.

Key characteristics of price:

• It is objective because it is based on actual supply and demand.
• It can be higher or lower than the calculated value.
• It is influenced by market conditions, buyer emotions, negotiation, and information availability.

Value

Value represents the theoretical or subjective measure of the utility of an item or asset. It expresses the actual economic substance and can vary depending on the context, purpose of the valuation, and calculation method.

Types of value:

• Market value (Usual price): The estimated amount for which an asset would be sold on an open market between independent parties (typically determined when valuing businesses or real estate).
• Subjective (investment) value: Each buyer may perceive value differently (e.g., an investor sees greater potential than an ordinary buyer).
• Book value: The value of assets recorded in the accounts (historical cost less depreciation).
• Liquidation value: The amount for which a business or asset would be sold in a forced liquidation.
• Objectified value: A value that is as independent as possible from subjective influences, based on objective data and market conditions.
• Fair value is defined as the value in a sale of an asset between two specific parties, taking into account the advantages and disadvantages of those parties.
• Real value is closest to market value, but is not identical to market value. As stated in Section 27 of the Accounting Act, real value is defined exclusively for the purposes of accounting regulations, where it serves to measure assets and liabilities in accordance with accounting standards.
• Assessed price: also referred to as administrative or regulatory price, is defined in Section 2(3) of the Property Valuation Act negatively, as a price determined according to this act. It is most commonly applied when determining the value of real estate.

Value therefore depends on the valuation methodology, the data used, and the assumptions made.

Beware of Non-Existent Value Bases

In our practice, we have encountered value bases that no regulation recognizes and should therefore be unusable. However, such pseudo-values have often been accepted by all parties involved and have served as the basis for decisions or transactions. These include the following terms:

• Objective value
• Objective market value
• Actual market value
• Real market value
• Assessed usual price
• Actual value
• Determination of actual value
• Expert estimate of market price of a company
• Value

If someone offers you a value calculation under the above-mentioned terms, be cautious! These terms are not defined by any relevant regulation and their meaning is not clearly established. The output of such a valuation may be unpredictable and unusable for legal, accounting, or business decision-making. Recommendation: Always verify according to which methodology and legal framework the value is determined. If it is not clear what the calculation leads to, it may be entirely worthless to you.

Summary

• Value is theoretical, estimated, and can vary depending on the valuation methodology.
• Price is the amount actually paid, which may differ from value due to market conditions.

Price is therefore a specific number, while value is a concept that attempts to estimate that price.

A business valuation determines its value, but the price is the result of an agreement between the seller and the buyer.

For more information on this topic, we recommend reading the article by Ing. Martin Cerveny, MBA -- Non-Existent Value Bases in Expert Appraisals of Business Enterprise Valuations.